APS Case Study Implementation Approach

1. APS Case StudyImplementation Approach Clay Greenwald Craig McClory November 3rd, 1999

2. Objective

3. Objective Presentation Objective The Objective of this presentation is to highlight the major steps taken at Thomson Consumer Electronics from walking in the door to a successful APS implementation. • Methodology • Measurements • Workshop Approach • Case Study - Background • Demand Planner Solution • Supply Chain Planner Solution • Supply Chain Functionality • Lessons Learned • Team Profile • Resource Utilization • Summary

4. Methodology

5. Use a Disciplined Approach Methodology PricewaterhouseCoopers’ SMM/CI (pre-Ascendant) methodology when combined with i2 Technologies Business Release methodology created a successful approach. Analysis Definition Design Construction Implementation Closure • Business Release Scope Definition • Stakeholder Strategy • Communication Strategy • Diagnostics • Business Environment • People and Culture • System and Data • Target Enterprise • People and Culture • Process Definition • Organization Definition • Data Definition • Systems Definition • Infrastructure Definition • Transition Planning • Documentation and Training Development & Delivery • People and Culture • Infrastructure Transition • System Definition • Data Design • Acceptance Testing • Program Design and Coding • System Testing • System Implementation • Roll-out • Post-Implementation Review

6. Methodology i2’s Proven Implementation Methodology Combined with the i2 methodology, business benefits can be driven from the Business Release Methodology. • i2’s Business Release Methodology • Divide project into sections focused on business value • Structure teams for each release • Evaluate effectiveness of each release and use lessons learned to improve future releases • Celebrate Success!

7. 1Q98 2Q98 3Q98 4Q98 1Q99 2Q99 3Q99 Business Release 1 - (Proof of Concept) Business Release 2 - (Demand Planner) Business Release 4, 5 and 6- (Supply Chain Planner with Inventory Policies and Supplier Flexibility) Business Release 3 and 7 - (Causal Forecasting Techniques and Demand Fulfillment AATP) Methodology The Implementation Sequence Business Releases are designed to be implemented in a short period of time and to create business benefit for the client.

8. Measurements

9. Customer Fill Forecast Accuracy Turns Customer Turns/OOS Order Cancels’ Where’s the Value ?? It is important to measure improvements to understand how the effort translates to business benefit. • Customer fill rate…improved large and small customers…disproved a myth • Improved forecast accuracy versus prior year…customer participation and tools • Inventory stabilized…+/- two turns versus ten goal • Customer warehouse inventory reduced 50% while improving OOS by 75% • Order cancellation trend reversed…1Q down 60% from prior year Measurements

10. 9.0% 20 Less Inventory Out of Stock from 7% to < 0.5% 18 8.0% 16 7.0% 14 6.0% 12 Percent 5.0% Turns 10 4.0% 8 3.0% 6 2.0% 4 GMROI Doubled 1.0% 2 0.0% 0 8 9 10 11 12 1 2 3 4 5 6 7 Months Our Customers are Starting to Recognize EXTREME value The pilot implementation clearly demonstrated significant benefits to both TCE and their customers in addressing common supply chain problems. Measurements

11. Workshop Approach

12. Workshop #1 Best Practices Workshop #2 Customer Requirements • What are customers saying regarding the supply chain performance? Workshop #3 Diagnostics Workshop #4 TCE Model Workshop #5 Info Technology How we got started... 6 WORKSHOP SEQUENCE • What are companies doing to maximize supply chain performance? • What are the major opportunities to improve the supply chain performance? Workshop Approach • Which major opportunities should be address? High-level Implementation Plan Overview • What are technology implications and how does it impact implementation timing • Business releases • Benefits • Infrastructure • Resources

13. Workshop 1 - Approach Best Practices in each of the functional areas of the supply chain were presented. Service Sales & Marketing Forecasting Logistics & Supply Manufacture Order Processing Sourcing & Procurement New Product Development Information Technology Workshop Approach We began by focusing on those areas which directly affect the customer and move towards the beginning of the supply chain • After each functional area, the group scored each of the best practices in terms of potential customer impact and financial impact • The results were organized and ranked to facilitate discussion on the relative benefits of each best practice

14. Results from Workshop 1 Does the perspective of the Steering Committee match that of the sales force? The circle highlights the best practices that the steering committee believes represent the greatest opportunities for improvement. - Forecasting - Forecasting Workshop Approach Customer Impact Sourcing - Forecasting - - Manufacturing - Marketing - Forecasting - Marketing - Forecasting - Forecasting - Manufacturing

15. Workshop 2 - Approach Workshop 2 presented three areas interrelated to the current and future customer requirements. The market and dealer trend analysis focused on demographic and consumer spending trends, the effects these trends have on CE dealers, and how CE vendors will need to react. Market and Dealer and Trends Potential Future Customer Requirements from internal sources The future customer requirements section revealed areas in which the sales force survey has determined that TCE must concentrate to become the future preferred supplier. Workshop Approach The customer survey section outlined the customer perception of TCE’s services and highlight areas where TCE is not performing to the expectations of the customers. Customer Survey Snap shot of today at channel level

16. Customer Survey Feedback from Workshop 2 The survey provided information from an internal / external perspective on what customers want from TCE in the future. • The survey was sent to 33 sales representatives and 60 customers. • The TCE implementation team followed-up to ensure responses. • An 85% response rate was achieved. Method: Main idea from responses Workshop Approach Question asked in survey Responses ranked by reps Results: Selective direct response

17. Workshop 3 - Diagnostics We found four major issues impacting TCE ability to efficiently respond to current customer needs with current CTV products. Opportunities Key Issues • Effectively responding to customers is difficult because of the long planning cycle time • Demand Planning • Supply Planning • Even if planning were fast and dynamic, TCE does not have the information available to make optimal decisions • Allocating product to the most desirable customers • Optimal deployment when supply exceeds demand • TCE is inhibited in its ability to produce what customers want because of material shortages • Start with demand • Long lead time items • Coordination among facilities • Some performance measures drive behaviors which do not optimally support supply chain excellence Reduce cycle time (Plan concurrently and frequently) Use policies and decision rules to drive profitable decisions (strategy driven) Workshop Approach Plan concurrently across the supply chain, while respecting constraints, & propagate changes immediately Align measures across the supply chain

18. Workshop 3 - Diagnostics We found four major issues impacting TCE ability to efficiently respond to current customer needs with current CTV products. Opportunities Key Issues • Effectively responding to customers is difficult because of the long planning cycle time • Demand Planning • Supply Planning • Even if planning were fast and dynamic, TCE does not have the information available to make optimal decisions • Allocating product to the most desirable customers • Optimal deployment when supply exceeds demand • TCE is inhibited in its ability to produce what customers want because of material shortages • Start with demand • Long lead time items • Coordination among facilities • Some performance measures drive behaviors which do not optimally support supply chain excellence Reduce cycle time (Plan concurrently and frequently) Use policies and decision rules to drive profitable decisions (strategy driven) Workshop Approach Plan concurrently across the supply chain, while respecting constraints, & propagate changes immediately Align measures across the supply chain

19. Workshop 3 - Diagnostics We found four major issues impacting TCE ability to efficiently respond to current customer needs with current CTV products. Opportunities Key Issues • Effectively responding to customers is difficult because of the long planning cycle time • Demand Planning • Supply Planning • Even if planning were fast and dynamic, TCE does not have the information available to make optimal decisions • Allocating product to the most desirable customers • Optimal deployment when supply exceeds demand • TCE is inhibited in its ability to produce what customers want because of material shortages • Start with demand • Long lead time items • Coordination among facilities • Some performance measures drive behaviors which do not optimally support supply chain excellence Reduce cycle time (Plan concurrently and frequently) Use policies and decision rules to drive profitable decisions (strategy driven) Workshop Approach Plan concurrently across the supply chain, while respecting constraints, & propagate changes immediately Align measures across the supply chain

20. Workshop 3 - Diagnostics We found four major issues impacting TCE ability to efficiently respond to current customer needs with current CTV products. Opportunities Key Issues • Effectively responding to customers is difficult because of the long planning cycle time • Demand Planning • Supply Planning • Even if planning were fast and dynamic, TCE does not have the information available to make optimal decisions • Allocating product to the most desirable customers • Optimal deployment when supply exceeds demand • TCE is inhibited in its ability to produce what customers want because of material shortages • Start with demand • Long lead time items • Coordination among facilities • Some performance measures drive behaviors which do not optimally support supply chain excellence Reduce cycle time (Plan concurrently and frequently) Use policies and decision rules to drive profitable decisions (strategy driven) Workshop Approach Plan concurrently across the supply chain, while respecting constraints, & propagate changes immediately Align measures across the supply chain

21. Workshop 3 - Performance Measures Looking at the business, the key measurements tend to be focused on volume and cost in spite of recent attempts to emphasize mix over volume. EXECUTIVE MEASURES IN LINE WITH THE BUSINESS GOALS AND STRATEGIES SCHEDULING & MANUFACTURING SALES & SALES ADMIN SOURCING & PURCHASING Workshop Approach • Revenue • Meeting monthly budgets • Forecast Accuracy • Fill Rate • Volumes • Budget • Model mix attainment • Service call rates • Yields • Inventory levels • Actual vs. budget • Headcount • Purchase material variance • Business plan commodity factor • Consumer acceptance lab rating • Factory support • Inventory reduction goals

22. Workshop 4 - Development of a TCE Model Addressing four issues identified in our diagnostic has implications on seven process areas. Customer responsive supply chain issues Process improvement areas Demand planning Planning time for demand and supply takes too long TCE does not have the information to make optimal decisions Because of internal and external material shortages, TCE is inhibited in it’s ability to produce what the customers want Performance measures do not always support the global supply chain optimization S &OP / Master scheduling Customer allocation Workshop Approach Order promising Operations management Supplier management Performance measures

23. Workshop 4 - High Level Solutions Demand Planning - Key problem and High Level Solutions. Planning and forecasting, and therefore production, are out of “synch” with market demand Demand planning S &OP / Master scheduling • Proposed Solution • Create weekly, collaborative • demand planning process which • will use current market data • and customer input to drive • the business plan and • production. Customer allocation Workshop Approach Order promising Operations management Supplier management Performance measures

24. Customer demands are not dynamically reconciled against business constraints Workshop 4 - High Level Solutions S& OP / Master Scheduling - Key problem and High Level Solutions. Demand planning S &OP / Master scheduling • Proposed Solution • Create a central planning • process tasked with creating a • weekly plan reconciling • supply constraints with demand. Customer allocation Workshop Approach Order promising Operations management Supplier management Performance measures

25. Unable to allocate product to customers based on business objectives Workshop 4 - High Level Solutions Customer Allocation - Key problem and High Level Solutions. Demand planning S &OP / Master scheduling • Proposed Solution • Drive demand allocation • based on business objectives, • automating the basic allocation • process; allow intelligent, interactive • adjustments and reallocations • on hierarchical categories at any • product level. Customer allocation Workshop Approach Order promising Operations management Supplier management Performance measures

26. Workshop 4 - High Level Solutions Order Promising - Key problem and High Level Solutions. Unable to promise and fill orders based on business objectives Demand planning S &OP / Master scheduling • Proposed Solution • Create an order promising • process which provides 100% • accuracy while adhering • to business objectives. Customer allocation Workshop Approach Order promising Operations management Supplier management Performance measures

27. Workshop 4 - High Level Solutions Operations Management - Key problem and High Level Solutions. Schedule priorities are modified and not effectively communicated across the enterprise. Demand planning S &OP / Master scheduling • Proposed Solution • A dynamic, constraint based • scheduling system, updated • daily/weekly, governed by • business priorities and • executed absolutely. Customer allocation Workshop Approach Order promising Operations management Supplier management Performance measures

28. Workshop 4 - High Level Solutions Operations Management - Key problem and High Level Solutions. Lack of focus on suppliers of critical components Demand planning S &OP / Master scheduling • Proposed Solution • Be collaborative with our key • suppliers like our • key customers. Customer allocation Workshop Approach Order promising Operations management Supplier management Performance measures

29. Workshop 4 - High Level Solutions Operations Management - Key problem and High Level Solutions. No strong measures aligned on supply chain excellence. Demand planning S &OP / Master scheduling • Proposed Solution • Establish performance • measures that drive TCE goals, • complement overall supply chain • goals, support company’s business • plan, and encourage supply • chain values, behaviors, and • results. Customer allocation Workshop Approach Order promising Operations management Supplier management Performance measures

30. Workshop 5 - Information Solutions A comparison was made to determine the benefits of implementing an ERP or SCM solution. Supply Chain Management vendors can support the planning functionality needed to drive the business benefit. ERP solutions • ERP packages capture the transactions of a business and provide the data backbone • ERP packages provide communication between business functions • ERP packages are focused on the functions within the business SCM solutions • SCM plans and optimizes the supply chain considering the complex supply and demand interactions within and beyond the enterprise • SCM provides strategic, tactical and operational planning • SCM can deliver dramatically higher ROA, are quicker to implement, and have less organizational impact • SCM can provide competitive differentiation and competitive advantage Workshop Approach

31. Supply Chain Vision Implementation of the supply chain vision has three areas of focus - Demand, Supply and S&OP, and Customer Satisfaction. SUPPLY & S & OP DEMAND Market Manufacturing DEMAND Forecast Accuracy SUPPLY Mix Attainment Dealer Inventory S. & O.P. Workshop Approach Sales Team Sourced Finished Goods SUPPORTABLE DEMAND CUSTOMER SATISFACTION ALLOCATION SUPPORT PLAN Order Ship ORDER PROMISE

32. Pilot Demand Supply and S&OP Customer satisfaction Other Opportunities Supply Chain Vision The implementation of the supply chain vision has been segmented into seven “business releases”. Each release provides a clear and logical segment of work that is focused on specific quantified value. Business Release (Executive Sponsor) BR1 - Pilot proof of concept ( Meyer) BR2 - Reduce demand planning to production time to 4 weeks (Ruby) BR3 - Reduce planning cycle time to 1 week (Johnson) BR4 - Improve mfg. mix attainment; supply/demand (Hakala) BR5 - Establish inventory policies (Ruby / Johnson) BR6 - Improve supplier lead times (Love) BR7 - Improve order promising through hierarchical allocations (Ruby) New product development (Hakala) Returns processing (Ruby) Workshop Approach

33. Case Study - Background

34. Key Components Multimedia & Services Core Products TV VCR Camcorder Accessories Audio Communications Key Components Digital & Services Description:Design, manufacturing, sales and distribution of TV products. Products:HDTV Projection TVs Direct view TVs TV/VCRs Key Competitors:Zenith Philips / Magnavox Sony Sanyo Sharp Panasonic Toshiba JVC Matsushita Description:Sales and distribution of VCR products. Products:VCRs - 2HD, 4HD, HI-FI, VCR kits Key Competitors:Philips / Magnavox Panasonic Sony Description:Sales and distribution of Camcorder products. Products:Camcorders - 8MM, Digital, Full-Size, VHS-C Key Competitors:Sony JVC Description:Design, sales distribution of Accessories. Products:Antennas Home and Remote Controls Hookups Bags Key Competitors:Rectathon Description:Sales and distribution of Audio products. Products:Home audio systems Portable stereos Portable CD players Clock radios Key Competitors:Sony Philips / Magnavox Aiwa (Sony owned) Description:Sales and distribution of Communications products. Products:Corded and Cordless phones Dedicated and Integrated Answering machines Key Competitors:AT&T Sony Panasonic Description:Design, manufacturing, sales, and distribution of electronic components to the OEM industry. Products:Picture tubes Plasma displays Video components Optical pickups Key Competitors:Matsushita LG Electronics Philips Description:Design, manufacturing, sales, and distribution of software, digital, and interactive TV services. Products:Digital cable modem Digital satellite system Digital Video Disc and GLA, MMDS, DTC Key Competitors:DSS - Sony and Hughes DVD - Toshiba and Panasonic Thomson Consumer Electronics Market Space Thomson currently competes in 8 product areas within the consumer electronics industry. Case Study - Background

35. 1997 YTD COLOR TV SHIPMENTS 3X 2.5X 2X UNITS SHIPPED 1.5X Average units / month 1X 0.5X 0 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT MONTHLY Monthly Mfg TV Shipment Profile During the Internal Diagnostics it was highlighted that monthly practices were causing large, abnormal demand spikes in the supply chain. Case Study - Background

36. Demand Planner Solution

37. The Team Teamwork was the key to successful Demand Planner Implementation. • Deep customer knowledge • Expertise in the consumer electronics industry • Internal IT Systems expertise One Team Demand Planner Solution • Strong SCM experience • Organizational Change expertise • Applications and Business Process integration • Deep product knowledge • Implementation experience • Industry Templates to speed implementation

38. Sales Pre-Consensus Forecast The Demand Planning Process The demand planning process was changed to incorporated every section of the organization in a final consensus meeting. Statistical Forecast • Generated in RHYTHM Demand Planner™ Flow of Forecasts • Received via EDI / Web Input Customer Forecast Hybrid Forecast Brand Management Sales Product Management Hybrid Forecast Hybrid Forecast Hybrid Forecast Old Consensus Forecast Old Consensus Forecast Old Consensus Forecast Brand ManagementPre-Consensus Forecast Brand ManagementPre-Consensus Forecast Indicator Brand Management Pre-Consensus Forecast Sales Pre-Consensus Forecast Indicator Indicator Sales Pre-Consensus Forecast Product ManagementPre-Consensus Forecast Demand Planner Solution Sales Brand Management Brand Management Pre-Consensus Forecast Product ManagementPre-Consensus Forecast Product ManagementPre-Consensus Forecast Demand Consensus Meeting Final Adjustment Sales Planning System Consensus Demand Forecast

39. Overcoming Obstacles The most challenging of obstacles to overcome was the cultural change. Management and staff are now measured on Forecast Accuracy of Planned and Statistically Forecasted accounts. • Culture Change • Re-defining Job Descriptions and Roles • Process Change from Monthly to Weekly • Web Interface Problems • Communication Link Between Countries and Offices • Linking RHYTHM Demand Planner to RHYTHM Supply Chain Planner™ Demand Planner Solution

40. Successful EXECUTION means… Job Descriptions, Roles, and Responsibilities were all re-created with input from all members of the team. • Everyone on the TEAM Has Defined Jobs, Roles and Responsibilities • Everyone on the TEAM Understands His Job, Role and Responsibilities • Everyone on the TEAM Does His Part to Fulfill His Job, Role and Responsibilities By defining roles and responsibilities, it is possible to diagnose and resolve skill gaps through... (1) Training (grow internal skills) (2) Hiring (acquire external skills) Demand Planner Solution

41. Focus on Improved Statistical Forecasting The Demand Planner was implemented in 4 months. Improving the statistical portion of the demand was then focused on. There are four guiding principles behind better Statistical Forecasting • Clean and Harmonize Data • Aggregate for Accuracy • Consider All the Information You Have • Use the Right Statistical Technique Demand Planner Solution A critical new step Middle Out Forecasting was introduced as not all the customer were able to give accurate forecasts. Aggregated demands were more accurate and were then able to be pushed to the individual model level

42. Forecast Accuracy - Why Change the Definition? In order to measure the improvement of the Customer Demand Accuracy a new measurement was created that focused on Forecasts and Orders. • Old Measurements Focused on the ‘Sign-off Plan’ • Did not reflect TCE’s ability to forecast demand • Measures ability to ship “sign-off plan” regardless of orders • New Measurements Focus on Demand Forecast Plan Vs. All Orders As Entered • Need to determine if we are asking manufacturing to build / purchase the “Right Product” Demand Planner Solution

43. Supply Chain Planner Solution

44. DC DC DC DC DC ASIA Typical Channel from supplier to TCE D.C. For Sourced product the typical distribution pattern for service to the customer uses D.C. placed logistically throughout the U.S. Supply Chain Planner Solution El Paso TCE( Thailand ) Mexico

45. TCE Supply Chains At TCE the total number of consumer items have been broken into 9 separate supply chain engines. Supply Chain Accessories 1 Accessories 2 Accessories 3 Audio Communications Manufactured Digital Manufactured TV Sourced TV&Digital Video Total # SKU’s 500 715 657 155 164 55 204 106 43 2599 Supply Chain Planner Solution

46. Day 1 Day 5 Day 2 Day 1 Day 5 Day 4 Day 3 Fri Fri Wed Thurs Thurs Sat Sun Mon Tues Demand Planners Supply and Deployment Planners Weekly Demand / Supply Planning Cycle The weekly planning process is now initiated by customer demands, which are then balanced against inventory and supply capability. Customer Forecast Loaded to Demand Planner Web / EDI Forecasts Arrive Web / EDI Forecasts Arrive Supply Chain Planner Solution Demand Planning Consensus Meeting S &OP meeting Prioritize customer Demand / Supply Load Demand / Inventory to SCP SCP Config. For Initial Loads Execute Deployment Plan Finalize Production / Distribution Plans Plan with Supply Chain Planner & Factory Planner Approved Shipments from Finished Goods Vendors Arrive Send Requests to Vendors

47. 1 1 Functional / Process Architecture The initial critical phase of the planning process is accurate customer demand. Approved Shipments Sales Planning Orders and Inventory Position Sourced Vendors Vendor Commitments FC Netting / Priority Process Supply Chain Planner Solution SCP Configurator S&OP Process Supply Chain Planner Production Requirements Demand Consensus Forecast Production Feasibility Demand Planner Factory Planner & MRP

48. 2 Functional / Process Architecture The customer forecasts must then be “netted” with the customer orders ensuring no double counting of demand. Approved Shipments Sales Planning Orders and Inventory Position Sourced Vendors Vendor Commitments FC Netting / Priority Process Supply Chain Planner Solution SCP Configurator S&OP Process Supply Chain Planner Production Requirements Demand Consensus Forecast Production Feasibility Demand Planner Factory Planner & MRP

49. 3 Functional / Process Architecture Prior to beginning planning, the planners are able to change the key inputs using the SCP Configurator tool. Approved Shipments Sales Planning Orders and Inventory Position Sourced Vendors Vendor Commitments FC Netting / Priority Process Supply Chain Planner Solution SCP Configurator S&OP Process Supply Chain Planner Production Requirements Demand Consensus Forecast Production Feasibility Demand Planner Factory Planner & MRP

50. SCP Configurator Example: Changes can be made to the weeks of inventory coverage and saved to the database. Fractions of a week have been incorporated. Supply Chain Planner Solution